Abstract:
The extant literature has produced mixed evidence on the relationship between fnancial development and ecological sustainability. This work addresses this conundrum
by investigating fnancial development’s direct and indirect consequences on ecological quality utilizing the environmental Kuznets curve (EKC) methodological approach.
Our empirical analysis is based on the novel dynamic autoregressive distributed lag
simulations approach for South Africa between 1960 and 2020. The results, which used
fve distinct fnancial development measures, demonstrate that fnancial development boosts ecological integrity and environmental sustainability over the long and
short terms. In the instance of South Africa, we additionally confrm the validity of the
EKC theory. More importantly, the outcomes of the indirect channels demonstrate
that fnancial development increases energy usage’s role in causing pollution while
attenuating the detrimental impacts of economic growth, trade openness, and foreign
direct investment on ecological quality. Moreover, the presence of an inadequate
fnancial system is a requirement for the basis of the pollution haven hypothesis (PHH),
which we examine using trade openness and foreign direct investment variables. PHH
for both of these variables disappears when fnancial development crosses specifed
thresholds. Finally, industrial value addition destroys ecological quality while technological innovation enhances it. This research provides some crucial policy recommendations and fresh perspectives for South Africa as it develops national initiatives to
support ecological sustainability and reach its net zero emissions goal.
